Accelerating Agritech Solutions in Israel, California, and Developing Economies
The global agricultural industry, which includes agritech and other agribusiness sectors, includes not only the cultivation, harvest, storage, and transport of food, but also its distribution, processing, preparation, service, and disposal. The industry totals $8 trillion annually, according to World Bank estimates.
Food and food services account for 10 percent of consumer spending worldwide, and a significant share, 27 percent, of global employment, if one counts subsistence farmers among the 2
billion total. The International Labor Organization reports a lower but still immense number: 866 million “officially employed” in the sector in 2018.
For all the economic growth reflected in these numbers, we face dire challenges, including worsening food distribution inequality and agriculture’s
rising share, fully 33 percent, of global greenhouse gas emissions.
Yet enormous challenges present abundant opportunities, and Israel and the State of California have partnered to find solutions. With the signing of a joint Memorandum of Understanding in 2014, they are working to leverage Israel’s core strengths in climate-smart agritech R&D with California’s pivotal roles in the US food value chain and at the forefront of US environmental action. The results are intended to serve as models for the world.
Israeli agricultural production have declined over recent decades, from 11% percent of GDP in 1950 to about 2.4 percent of GDP in 2017. Declines in agricultural exports have also fallen for the period, to about 2.1 percent of 2018’s total exports. These trends reflect the rise in the value of other exports, the mechanization of the agriculture sector, and open trade for agriculture imports from global markets. Yet the agritech sector remains a huge draw for investors, yielding 17 percent in total returns for the period 2004−2013, more so than either the energy or information technology sector for the same period. Israel’s applied research centers, more than 900 farms, and 278-plus agritech ventures over just the period 2014−2018 have helped transform the country into a “living laboratory” of sector innovation, with projects and firms that operate globally.
Worldwide, investment in food-related and agricultural technologies is also soaring—in fact, by more than 500 percent, or from $2.6 billion to $17 billion, from 2012 to 2018, according to AgFunder, the online venture capital firm specializing in the sector. This includes both “upstream” and “downstream” investments, that is, investments “upstream” into farming technologies, robotics, and agricultural biotech, for example, and investments “downstream” into post-production and consumer-oriented operations like e-grocers and online delivery. Looking at just 2018, AgFunder reports that the number of VC deals rose 11 percent, to 1,450, and mostly from the US and China.
Israel’s experience resonates globally. In 2015, the final goal year of the UN Millennium Development Goals, about 13 percent of the world’s population—795 million people, or 1 in every 9—remained undernourished, meaning they still lacked sufficient food “for an active and healthy life.” McKinsey predicts that by 2050, “caloric demand will increase by 70 percent, and crop demand for human consumption and animal feed will increase by at least 100 percent.” Where will it come from?
McKinsey warns, “At the same time, more resource constraints will emerge: for example, 40 percent of water demand in 2030 is unlikely to be met. Already, more than 20 percent of arable land is degraded.” Farmers will have to produce more with less as climate change affects local weather patterns, water scarcity, and growing conditions, and as settlement patterns shift.
In both California and Israel, agriculture consumes about 60 percent of managed water resources and is responsible, respectively, for 3.3 percent and 2.3 percent, of their total greenhouse gas emissions. Globally, “agriculture, forestry, and other land use” (e.g., harvesting peatlands, deforestation and afforestation, and managing grasslands and wetlands) generate about 23 percent of human greenhouse gas emissions and more than 44 percent of methane.
It’s hard to imagine that massive waste occurs in the midst of these numbers. Yet the UN’s Food and Agriculture Organization (FAO) reports that one-third of grown food is either lost or wasted. In the developed world, this is due mainly to overconsumption and spoilage; but in the developing world, most food is thrown away before it reaches market due to the mismatch between supply and demand worsened by technical problems with storage, refrigeration, and transport. In Israel, post-harvest losses are lower, estimated at about 12−20 percent of fruits and vegetables. Agriculture is still one of the most important segments of developing country economies. An estimated 475 million of the 570 million farms worldwide are smallholder farms, i.e., farms smaller than 2 hectares (or 5 acres).16 These farms feed families who derive modest incomes from the sale of their produce each season. They would particularly benefit from technologies boosting post-harvest storage and transport, information exchange, distribution and pricing systems.
They could also benefit from access to the work done by Israel and California: how to grow food in desert climates; cultivate disease-resistant produce and grains; develop preservation techniques for long-distance delivery; increase livestock yields; and move the storage and processing production phases closer to the farmers themselves. Israel has introduced numerous innovations that increase productivity while reducing the reliance on natural resources, including accelerated seed and breeding technologies, data-based precision agriculture; water and nutrient delivery systems; post-harvest storage; and transportation logistics management systems. These technologies put real-time usage and pricing information into the hands of farmers and end users, giving them a chance to become sustainable, increase agriculture outputs and the quality of food, and improve market efficiencies.
In this context, the Milken Innovation Center convened a Financial Innovations Lab in Jerusalem in 2016 as a next step of the Israel−California partnership agenda and to assess recent developments in climate-smart agriculture. As part of the Lab, participants visited Israeli agritech companies and R&D centers that work on irrigation water technology, drones and robotics, and decision support and data management. The Lab’s primary focus was on the agritech firm value chain, from the barriers at startup and early growth to the eventual application of successful models internationally. Solutions focused on three main areas:
1. Market-ready technologies to meet immediate and near-term needs in the sector.
2. A financial platform, a climate-smart bond bank, to develop funding tools for agritech firms that fill the funding gaps at various growth stages, with appropriate scale, allowable uses,
terms, and conditions.
3. Co-innovation teams composed of California and Israeli specialists in policy, finance, investment, and business to contribute insights for investable solutions relevant to both of
these markets, and to developing markets as well. Over the three ensuing years, the Milken Innovation Center directed its work toward the California challenges cited in the Lab, and from these on to real projects to demonstrate proof of concept, with an emphasis on technology transfer to developing economies. This report looks at the results.
Postscript: In the time of Covid-19 which is covering the globe with shutdowns, quarantines, sickness, and deaths as we complete this report, the conditions of global supply chains are being shaken to their core.
Food losses (ranging from 20-50 percent in the developed economies and higher in the developing economies) are soaring, transportation linkages to markets for over 25 percent of global supply that must cross international borders are stalled or closed altogether, and new approaches to inclusive production and financial collaboration among large multinational corporations and small-holder farms are more important than ever. We will see the adoption of new packaging technologies, new solutions to reduce harvest and post-harvest waste, an increasing focus on regional production, processing, and consumption, and new growing technologies to lower labor and health risks. The sudden, but long-term nature of the
global pandemic and its impact on food supply, nutrition, and health bring new importance to the recommendations contained in this report – pressing us to find ways to accelerate the adoption of agritech solutions for world health and the health of the world.